Vesic v Serbian Cultural Club St Sava Inc & Ors; Bogunovic & Arch Priest Dragosavljevic v Serbian Orthodox Church St Knez Lazar Inc & Ors [2003] ACTSC 105 (11 December 2003)

Last Updated: 28 January 2004

LILLIAN VESIC v SERBIAN CULTURAL CLUB ST SAVA INC AND ORS; BISHOP NIKANOR BOGUNOVIC AND ARCH PRIEST ILIJA DRAGOSAVLJEVIC v SERBIAN ORTHODOX CHURCH ST KNEZ LAZAR INC AND ORS [2003] ACTSC 105 (11 December 2003)

PRACTICE AND PROCEDURE - application to amend judgment -alleged omission - limitations of the "slip" rule - impracticality of attempting to amend order granting liberty to apply when it had been intended that any application be made prior to the discharge of a receiver and the receivership had subsequently ended.

Supreme Court Rules, O 32 r 14

R v Cripps, ex parte Muldoon & Ors [1984] QB 686

No SC 491 and 502 of 2001

Judge: Crispin J

Supreme Court of the ACT

Date: 11 December 2003

IN THE SUPREME COURT OF THE )

) No. SC 491 of 2001

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: LILLIAN VESIC

Plaintiff

AND: SERBIAN CULTURAL CLUB ST SAVA INCORPORATED

First Defendant

AND: STEVAN RADOVANOV

Second Defendant

IN THE SUPREME COURT OF THE )

) No. SC 502 of 2001

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: NIKANOR BOGUNOVIC

First Plaintiff

AND: ARCH PRIEST ILIJA DRAGOSAVLJEVIC

Second Plaintiff

AND: SERBIAN ORTHODOX CHURCH ST KNEZ LAZAR INCORPORATED

First Defendant

AND: STEVAN RADOVANOV

Second Defendant

ORDER

Judge: Crispin J

Date: 11 December 2003

Place: Canberra

THE COURT ORDERS THAT:

1. the motion be dismissed.

1. This is an application under O 32 r 14 of the Supreme Court Rules, commonly referred to as the "slip rule", for an amendment of orders I made on 22 November 2002.

2. The proceedings in which the orders were made had initially related to the validity of an agreement for the sale of premises owned by the first defendant ("the Club"), to the third defendant ("Harcourt Homes"). These proceedings had been conducted in parallel with proceedings numbered SC 502 of 2001 which initially related to the validity of a further contract for the sale of property by the Serbian Orthodox Church St Knez Lazar Incorporated ("the Church"), which was the first defendant in that case, to Harcourt Homes. It quickly became apparent that there were substantial issues as to the control and management of both the Club and the Church and, in particular, as to the entitlement of the second defendant ("Mr Radovanov") to enter into the transactions on their behalf.

3. On 4 September 2001 Miles CJ granted injunctions effectively restraining Mr Radovanov from having access to the funds in his bank accounts and on 23 October 2001, Mr Ezio Marco Senatore ("the Receiver") was appointed as receiver of both the Club and the Church.

4. The Receiver made continuous attempts to ascertain the true financial position of both associations but was hampered by a paucity of accounting records and substantial disputes as to the sum of the debts claimed, including those claimed by Mr Radovanov. However, he was informed that substantial sums of money could be made available to the Club if it were in a position to recommence trading. The Receiver took the view that the constitution did not restrict eligibility for membership on the basis of ethnic or cultural considerations and proceeded to call a special meeting of people whom he described as coming from "the Serbian community" with a view to establishing a new constitution and electing a new committee of management. He also called a special meeting of the Church with a view to passing similar resolutions and, in addition, resolving to wind up the Church and transfer its assets and liabilities to the Club.

5. Mr Radovanov protested that this would effectively enable people whom he regarded as his "political enemies" to take over both the Club and the Church and, in effect, achieve much of what the plaintiff had sought without a judicial hearing on the merits. Consequently, on 4 October 2002 I granted interlocutory injunctions restraining the Club and the Church from passing resolutions to this effect.

6. Subsequently, it became clear that the Club was insolvent and, whilst it was impossible to determine whether the Church was also insolvent without a full audit of the accounts of both associations, its financial position appeared to be at least somewhat precarious. It was also argued that I could safely assume that the purpose for which the Church had been formed had substantially lapsed since there had been no priest since 1995, there were no continuing services, the Church building had been leased and there had been a reunification of portions of the Serbian Orthodox Church following an earlier division in 1963. Despite these submissions I was unable to be satisfied that adequate grounds for winding up the Church had been established.

7. In the circumstances revealed by the evidence, there appeared to be only two options. The first was to accede to an application by the Receiver for an order winding up the Club but leaving the Church subject to continuing receivership. The second was to lift the injunction that I had made on 4 October 2002 to enable the Club to adopt a new constitution, appoint a new committee of management and, if necessary, seek to have the Church wound up.

8. On 22 November 2002 I made the following orders in proceedings SC 491 of 2001:

1. The injunction granted on 4 October 2002 be discharged.

2. It be declared that the first defendant is at liberty to pass resolutions for the repeal of any existing constitution, the adoption of a new constitution and the election of a new committee.

3. The parties have liberty to apply for further orders, including orders for the winding up of the first defendant on two (2) days notice in the event that such resolutions are not passed by 20 December 2002 or that funds are not made available to the first defendant which are sufficient, in the opinion of the receiver, to enable it to pay its undisputed debts and recommence trading as a licensed Club.

4. Subject to any further order, the order appointing Mr Ezio Marco Senatore as receiver of the first defendant be discharged with effect from 5.00 pm on the date occurring fourteen (14) days after the passage of such resolutions.

5. Any existing injunction restraining the second defendant from having access to funds standing to his credit in bank accounts be discharged.

9. On the same day I made the following orders in proceedings numbered SC 502 of 2001:

1. The injunction granted on 4 October 2002 be discharged.

2. It be declared that the first defendant is at liberty to pass resolutions for the repeal of any existing constitution, the adoption of a new constitution and the election of a new committee.

3. It be declared that the first defendant is at liberty to pass resolutions that it be wound up by the Supreme Court and that any surplus property of the first defendant vest in the [sic] Serbian Cultural Club St Sava Incorporated.

4. The first defendant have liberty to apply for any further orders on two (2) days notice including an order that it be wound up.

5. Subject to any further order, the order appointing Mr Ezio Marco Senatore as receiver of the first defendant be discharged with effect from 5.00 pm on the date occurring fourteen (14) days after the passage of such resolutions.

6. Any existing injunction restraining the second defendant from having access to funds standing to his credit in bank accounts be discharged.

10. In making these orders, I was conscious of the fact that Mr Radovanov, who was the second defendant in each matter, and those associated with him may be left with a sense of grievance because there had been no final determination of some of the issues that had been raised between him and the other parties to the proceedings and the orders effectively gave control of both the Club and the Church to other people, many of whom he apparently regarded as his "political enemies". However, the Club was plainly insolvent and the only alternative was liquidation. Hence, whatever the validity of his contentions, neither he nor those associated with him could have regained effective control of it. Whilst the possibility that the Church may have remained a potentially viable association did exist, the apparent intermingling of its funds with those of the Club suggested that there was at least a real likelihood that the liquidation of the Club may have precipitated a similar fate for the Church.

11. The orders were clearly predicated upon the understanding that sufficient funds would be provided by people interested in resuscitating the financially moribund club to enable payment of its undisputed debts and to leave it with sufficient working capital to ensure its financial viability. No similar offer was made in relation to the Church and the orders clearly envisaged that an application might be made for it to be wound up.

12. The second defendant, Mr Radovanov, now seeks to amend order 4 of the orders I made on 22 November 2002 in relation to the Club, by inserting after the words "Subject to any further order" the words: "and the payment by the first defendant of the whole of the undisputed debts of the first defendant as identified by Mr Ezio Marco Senatore".

13. Mr Pappas, who appeared on his behalf, submitted that I had clearly intended to require payment of all of the debts which the Receiver regarded as undisputed. Mr Radovanov had claimed to be owed large sums of money by both the Club and the Church and the evidence of the Receiver lent some support to this contention. In November 2002, the Receiver said that he had been able to confirm that Mr Radovanov was owed at least $130,000 and that he regarded this amount to be "undisputed". Given the inadequacy of the Club's records and the limited time available to him, the Receiver had not been able to resolve Mr Radovanov's other claims but agreed that he might be able to establish that the Club owed him more than that amount.

14. The Receiver was subsequently able to verify further portions of these claims and confirmed that he had admitted an overall sum of $169,764.03 as an undisputed debt.

15. It was submitted on Mr Radovanov's behalf that, upon amending order 4 in the manner suggested, I should order the Club to pay him the latter sum or at least, the amount of $130,000 that had been effectively undisputed when the orders were made. In the alternative, it was submitted that the orders should be vacated and the Receiver reappointed or the Club wound up.

16. Mr Pappas was understandably critical of the conduct of some of the people who formed the Club's new committee of management.

17. On 17 December 2002, after settlement negotiations between the plaintiff and the then third defendant Harcourt Homes Pty Ltd, the Receiver indicated that the funds required to pay the undisputed debts, recommence trading and pay the costs of the receivership were as follows:

* $195,232 payable to Harcourt Homes;

* $365,768 payable to the Club; and

* $250,000 to be provided as an "unconditional financial facility".

18. It apparently proved difficult to arrange such a facility. The plaintiff's solicitors ultimately advised the Receiver that members of the Club had been able to raise the sum of $148,500 and Mr Robert Milicevic was attempting to obtain a bank guarantee for a further sum of $50,000. In these circumstances he was satisfied that sufficient funds has been made available to the Club to enable the new management committee to pay the undisputed debts and recommence trading. Accordingly, his receivership ended on 2 January 2003 by reason of what he described as "auto-effect" of the orders made on 22 November 2002.

19. However, it now appears that the funds required by the Receiver were provided only upon an undertaking that he would not make any payment to Mr Radovanov. Furthermore, it is now clear that it had been intended that much of those funds would not be used either for payment of undisputed debts or working capital but repaid to those that had provided them. In fact, on the 23 January 2003 the plaintiff authorised her solicitors to withdraw the sum of $303,995.31 from their trust account and pay it out to the Serbian Council of the ACT.

20. It is, of course, a legal obligation for any body to pay its undisputed debts and, when a body is in receivership, the receiver has an obligation to make such payments on its behalf subject, of course, to there being sufficient funds available to enable him or her to do so. Accordingly, when I made the orders that I did, I confidently expected that the Receiver would not merely cast his eye over the amount that had been paid into the account of the Club to ensure that it was sufficient for the relevant purposes, but that he would actually pay the undisputed debts.

21. During the course of his submissions on behalf of the plaintiff, Mr Erskine suggested that I would not have had such an expectation because the offer that had been made on behalf of the plaintiff did not envisage paying any of the claims to Mr Radovanov. Mr Erskine maintained he had made the proposal quite explicit by stating that "it would not be appropriate for the plaintiff to be putting an offer on the table to resolve those matters". However, whilst I had understood that Mr Erskine's submissions reflected his client's reluctance to see Mr Radovanov paid anything, I did not understand him to be saying that those whom he described as "the proponents of the scheme" were prepared to provide funds only if any undisputed debts owed to Mr Radovanov remained unpaid. In fact, his submissions had included the statement that "If a proper claim is made and it is endorsed by the court or it's settled between the parties, so be it". The Receiver was, of course, the only person entitled to settle any claim on behalf of the Club. Similarly, Mr Erskine said that "It may be that some or part of them have substance. Nobody knows at this stage, not even the Receiver." I did not interpret this statement to mean that the Receiver should be denied the right to pay amounts to Mr Radovanov even if he found them to have substance.

22. More importantly, irrespective of what submissions may have been made by the parties, the orders that I made did not reflect any distinction based upon the identity of those to whom undisputed debts were owed. The orders were, in a sense, self executing but permitted further orders to be sought in the event that the Receiver did not receive sufficient funds to enable the Club to pay its undisputed debts and recommence trading. That was the only condition upon which I would have granted the order. If the proponents of the scheme had been unwilling to accept that it was necessary to provide sufficient money for all of the undisputed debts of the Club to be paid, then they could have declined to provide the funds. In that event, the matter would have come back before me and some other course would have been adopted.

23. In fact, the plaintiff and the proponents of the scheme agreed to provide the Receiver with sufficient funds to cover all of the undisputed debts, apparently including those owed to Mr Radovanov, but upon an undertaking that Mr Radovanov would not be paid. This was a proposition that had never been advanced by anybody and was certainly not contemplated in the orders that I made.

24. It is true that the orders were not made with the intention of exacting a "price" from either the plaintiff or the proponents of the scheme for the resuscitation of the Club, as Mr Pappas suggested in his submissions, but rather, with a view to ensuring that the Club could escape from insolvency and recommence trading in a viable financial position. It is also true, as Mr Erskine pointed out, that there may be good reasons why debts might not have to be paid, such as compromise or lack of proof, and that it is the capacity for payment that is the crucial issue in determining whether an organisation is solvent. However, the relevant portion of order 3 was not concerned with the debts that could not be proven or might be compromised, but with "undisputed debts". It was not made with the intention that the effective control of the Club could be facilitated by paying the Receiver enough money to enable payment of the Club's undisputed debts but on an undertaking that he would not pay them and that the Club's capacity to do so would be removed once his receivership had conveniently come to an end.

25. Mr Milicevic gave evidence that, whilst he had been present when the orders were made that effectively saved the Club from being wound up, he had believed that it was only necessary for funds to be available to pay the debts. He conceded that someone had mentioned to him a letter written by Mr Radovanov's solicitors on 22 January 2003 seeking an undertaking that the money would remain in Meyer Clapham's trust account pending the resolution of the issue as to whether that had been intended. He also agreed that he had probably been approached by Meyer Clapham in relation to the matter, but claimed that the sum of $303,995.31 had been paid out of the trust account on the very next day by mistake. I do not accept that claim.

26. Mr Brackenreg gave inconsistent evidence as to whether he had ever informed the Receiver that more than $300,000 was to be paid out of the trust account to the Serbian Council of the ACT after the receivership had ended. He initially said that he did not believe he had done so, then said that he believed that he had told Mr Senatore that that was what he had intended, later accepted that he had never told him "in any terms" that that was his intention or his client's intention, but finally said that he simply could not recall having a conversation with him to that effect. Having had the opportunity of observing Mr Brackenreg in the witness box whilst he gave this evidence, I accept that he was honestly struggling to recall what he may have said and that he had vacillated in attempting to reconstruct what he would have done before concluding that his memory was simply too unreliable to enable him to commit himself to either version. However, as Mr Pappas pointed out there is nothing in the numerous affidavits of Mr Senatore or, indeed, in his oral evidence to suggest that he had ever been made aware of such an intention.

27. Furthermore, Mr Brackenreg made it clear that Mr Senatore had sought confirmation that the funds were actually held by Meyer Clapham for appropriate disbursement. Mr Senatore had obviously regarded that step as necessary to enable him to be satisfied that sufficient funds were available to the Club to enable it to pay its undisputed debts. In those circumstances, it seems inconceivable that he could have been informed of an intention to pay more than $300,000 of those funds to a third party as soon as the receivership ended and yet have taken no steps to draw that fact to the Court's attention.

28. Accordingly, whilst there has been literal compliance with the orders, I am satisfied that the receivership ended only because of a material non disclosure made by people who had been elected as members of the new management committee on 19 December 2002.

29. On 7 February 2003 I ordered that the Club be restrained from drawing any money from any bank account if the result would leave a balance of less than $250,000. On 9 February 2003, the closing balance of the Club's account was apparently $655.61.

30. The evidence does not enable me to determine whether this had always been intended that funds be left in the account only until the Receiver had been led to believe they would be available to meet the Club's debts or, whether the new committee of management elected shortly before the receivership had ended, then decided to seize the opportunity thereby presented.

31. The much discussed cross claim against Mr Radovanov for mismanagement of the Club does not seem to have ever been formulated, let alone pleaded or particularised and the evidence from Ms Vesic suggests that at least some of those who professed such indignation about his management of the Club now seem to be behaving in a similar manner. Furthermore, Mr Radovanov has other outstanding claims against both the Club and the Church. There is nothing in the evidence to suggest that any claim for mismanagement would be likely to produce any offsetting liability sufficient to outweigh the value of any judgment that Mr Radovanov might obtain in relation to those claims against the Club and the Church that had not been regarded by the Receiver as "undisputed".

32. In giving my reasons for adopting the approach permitting resuscitation of the Club, I referred to its significant attractions including my expectation that "it would ensure that at least the undisputed debts of both Associations were paid in full . . .". It is true that I also observed that this course "would not resolve any disputes concerning debts claimed by Mr Radovanov and others", but despite some of the submissions now being advanced, I must say that I had not expected anyone to interpret the phrase "disputes concerning debts" as extending to debts that were then undisputed by the Receiver.

33. Whatever understanding the parties may have had, the position has now been reached in which the Club has been effectively resuscitated, a new committee of management has been formed and those people have, thus far, effectively evaded payment of that portion of the debts claimed by Mr Radovanov that the Receiver had accepted could not be disputed. Furthermore, it now appears that Mr Radovanov has been sued by at least one of the Club's trade creditors for a debt which he apparently guaranteed, though I was assured by Mr Love that the Committee would attempt to resolve this matter. The real question is what should be done about this situation?

34. The "slip rule" encapsulated in O 32 r 14 of the Supreme Court Rules is limited to the correction of clerical mistakes or errors arising from accidental slips or omissions. However, in considering the corresponding rule in England, Donaldson MR said in R v Cripps, ex parte Muldoon & Ors [1984] QB 686 at 695:

It is surprisingly wide in its scope. Its primary purpose is akin to rectification, namely to allow the court to amend the formal order which by accident or error does not reflect the actual decision of the judge. . . . But it also authorises the court to make an order which it failed to make as a result of the accidental omission of counsel to ask for it. . . . It even authorises the court to vary an order which accurately reflects the oral decision of the court, if it is clear that the court inadvertently failed to express the decision which it intended